Household Debt and Monetary Policy: Revealing the Cash-Flow Channel
Martin Flodén (),
Jósef Sigurdsson and
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Matilda Kilström: IIES, Stockholm University
Jósef Sigurdsson: IIES, Stockholm University
No 342, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)
We examine the cash-flow channel of monetary policy, i.e. the effect of monetary policy on spending when households hold debt linked to short-term rates such as adjustable rate mortgages (ARMs). Using registry-based data on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debtto- income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5.
Keywords: Monetary policy; consumption; household debt; variable interest rates; adjustable rate mortgages (search for similar items in EconPapers)
JEL-codes: D14 E21 E52 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eur, nep-mac and nep-mon
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Working Paper: Household Debt and Monetary Policy: Revealing the Cash-Flow Channel (2017)
Working Paper: Household Debt and Monetary Policy: Revealing the Cash-Flow Channel (2016)
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